Investing.com -- Shares of Rheinmetall AG (ETR:RHMG) jumped by 11% on Monday, as European leaders considered a new defense spending package to further assist Ukraine.
If Europe decides to boost its defense budget, Rheinmetall may be prompted to accelerate its production capacity expansion.
Over the past year, the German defense manufacturer has seen its stock more than double, driven by a surge in military orders, particularly from Germany.
European officials are working on a significant new initiative to strengthen defense spending and support Ukraine, which won’t be revealed until after the German election on February 23 to avoid political controversy.
Meanwhile, U.S. President Donald Trump has called for a swift end to the war, increasing European concerns. Many are anxious that Trump may withdraw from long-standing security commitments, leaving Europe to handle its own defense.
"We expect the sector to be volatile over the coming months, and this week is likely to be no exception," said analysts at Morgan Stanley (NYSE:MS) in a note.
This worry grew following a recent call between Trump and Russian President Vladimir Putin, which sidelined Europe as the US and Russia engaged in direct negotiations over Ukraine.
Rheinmetall's CEO, Armin Papperger, met with Ukrainian President Volodymyr Zelensky over the weekend to discuss expanding the company’s operations in Ukraine.
According to Zelensky’s official website, the discussions focused on potential joint industry projects, particularly for producing 155mm ammunition locally.
"We remain bullish the sector, with Rheinmetall (Top Pick), Leonardo (BIT:LDOF), and BAE Systems (LON:BAES) are [overweight]-rated favored plays," Morgan Stanley added.
Shares of Leonardo and BAE Systems were up 6% and 6.7%, respectively at 06:11 ET (11:11 GMT).